Rumor Tightens Its Grip; Crude Closes at a Record $40.42
Oil prices soared again Thursday, reaching a record closing price above $40 a barrel and erasing the losses of the day before on new rumors of war, increased tensions and bullish industry statistics.
Light sweet crude oil for November delivery closed up $1.73 a barrel at $40.42 in trading on the New York Mercantile Exchange. The level was a record-high closing price for oil futures since they began trading in 1983.
The rapid run-up, coming a day after prices had dropped from record highs on an unfounded rumor that Iraqi President Saddam Hussein was dead, further underscored the emotional nature of the market, traders said.
“It’s confusing, but it’s telling you that the market is still extremely nervous in spite of what appear to be adequate supplies of oil,” said Daniel Uslander, a futures broker and principal with Hilltop Trading Co. in New York.
Thursday’s trading failed to exceed either the $38-a-barrel depth or the $41.15 high posted during the trading day Wednesday. The $41.15 was the highest price for crude oil ever reached on the U.S. futures market.
Refined products also moved higher Thursday. Unleaded gasoline for November delivery gained 2.4 cents a gallon to close at 96 cents a gallon. Heating oil for November delivery closed up 3.8 cents a gallon at $1.0485.
Traders sent prices higher partly because industry statistics showed falling stocks of crude oil and heating oil.
But rumors and Mideast news also drove the market, as they have since Iraq invaded Kuwait on Aug. 2. “You get a rumor, and the market rallies to a fixed point. But then trading stops, and everyone just watches the screens, wondering what the next story will be,” said Kenneth Nugent, an energy futures and options broker at Paine Webber Inc. in San Francisco.
The first news Thursday was about British Foreign Secretary Douglas Hurd, who said the United States and other nations with troops in Saudi Arabia will have to decide “in a matter of weeks . . . whether (diplomatic) pressures are going to do the job or whether the military option will have to be prepared” to drive the Iraqis out of Kuwait.
Traders read the statement as bringing the world a step closer to a military confrontation in the Persian Gulf.
Those fears were heightened by a subsequent news report that an Israeli army patrol was fired upon Thursday from across the Jordanian border.
The incident resulted in no injuries, and Israelis and Jordanians were looking into the shooting. But coming on the heels of the shooting deaths of 19 Palestinians in Jerusalem on Monday, the news was enough to send oil prices soaring, traders said.
After trading closed Thursday, further rumors circulated that Palestinians had launched a missile attack against Israel from southern Lebanon. The apparently unfounded rumor was enough to drive prices up another 50 to 60 cents a barrel Thursday evening on cash markets, where oil is traded after the futures market closes.
Oil prices opened strongly Thursday morning on the New York Mercantile Exchange in reaction to statistics released by the American Petroleum Institute, the industry’s main trade group, after the close of trading Wednesday. The statistics showed that U.S. crude oil stocks fell in the week ended Oct. 5 by 4.2 million barrels from the week before, mainly along the Gulf of Mexico coast. Stocks of distillates, including home heating oil, also fell, by 1.5 million barrels.
The report also showed that refinery operating rates and the level of crude oil imports by the United States fell in the same period.
Although the trend was not unexpected, the numbers highlighted fears that supplies of crude oil and refined products were growing tight.
Refineries have cut operations because the price of crude oil has risen faster than the price they can command for refined products, meaning that many refiners are now losing money, analysts said.
Normally, cutting refinery operating rates would lead to a buildup of crude oil stocks and a drawdown of refined product inventories, leading crude prices to fall and refined product prices to rise. Subsequent inventory reports should indicate whether those trends will come to pass.
John Lichtblau, president of the Petroleum Industry Research Foundation in New York, added that crude stocks and imports could grow in the next few weeks as additional amounts of oil from Saudi Arabia, Venezuela and other nations begin to arrive in the United States.
Those nations boosted their oil production to make up for the 4 million or so daily barrels of production lost to world markets under the U.N. embargo of Iraq and Kuwait imposed after the invasion.
